An initial survey of 232 advisers in January showed they expected demand from clients to be limited, with 70 per cent saying less than 10 per cent of their clients would be attracted to the product. This is understandable given that many advised clients will be over 40 and therefore not eligible. Even those that are eligible are more likely than DIY investors to already be homeowners and higher rate tax payers, meaning a pension is a more attractive option for retirement planning.
However, more recent research conducted in March suggests the absence of adviser charging from the LISA may be a barrier to advising clients on the merits of using the product. Almost half (45%) of the 200 advisers AJ Bell spoke to this time round believe enabling adviser charges via the LISA would encourage more clients to take up the product.
Under current LISA rules, adviser charges are classed as a chargeable withdrawal, unlike for the main ISA or pensions. The latest design note confirmed charges can be taken from the LISA to pay the LISA manager without incurring the 25 per cent exit penalty. However, no such provision was made for adviser charging.
Although adviser charging may not be feasible in the early years of the LISA when portfolio values are small, this will change over time as the product becomes more established and the Government should be taking a long term view of the role the product can play in people’s overall financial plans.
Mike Morrison, head of platform technical at AJ Bell comments:
“It makes no sense for adviser charging to be prohibited for LISAs when it is allowed for ISAs and pensions. We know that the Treasury wants the LISA to be a success, so it is strange that it is not prepared to make a simple change that could help that. The Government should be encouraging people to take advice about their savings, not putting barriers in the way.
“In the early days LISA pots will be modest but with good advice and investment growth - and the potential for the annual allowance to increase over time - the value of funds held in LISAs will grow. We risk ending up in a situation where clients have £50,000 or £100,000 invested in a LISA but are not able to pay for advice via that product. Worse still we may have people who miss out on the opportunity to build such a pot because of this barrier to advice.”